One of the early warning signs that you may be in financial trouble is how frequently you find yourself “missing” payments on your bills. Accidently missing a payment can happen to anyone – missing payments because you have to is another thing altogether.
The key is to plan sufficiently so that you don’t have to miss payments due to poor money management. Here are 5 steps to make sure you never miss a payment again.
Step 1) Keep Track of You Debts. Whether you use a piece of paper, a journal, a spreadsheet on a computer, or reminders on your personal calendar device you should have a list of all your debts and record every payment you are required to make as soon as you know you are going to have to make the payment.
I know lots of people that arrange their payments in their heads. The mortgage is due on the first, the car payment on the 15th. They figure if they have these covered all the little stuff will look after itself. Nothing ever looks after itself – you need to plan for it, especially if money is tight. And the little stuff often adds up to more than half of your pay.
Step 2) Plan your payments around your pay. If you get paid bi-weekly plan your payments to match your income. It doesn’t matter if your car loan is due every month on the 15th – if you get paid every two weeks then make your car loan payment on one of those paydays, or breakdown your car loan so some of the payment comes out of every pay. Either system works. The important thing is to know which bills are going to be paid from each pay. Don’t forget things like the phone bill, groceries, insurance, money for the kids, etc, etc, etc. The more detailed your list from point one the more accurately you can move your payments around for point 2.
This approach has two advantages:
- You will not run out of money at the end of the month because you overspent money sitting in your bank account for a few days.
- You will discover whether or not you have enough money every month to live. If there is no way to move your payments around to match your pay (ie your payments add up to more than your pay) then we need to move to step number three.
Step 3) Re-assess each and every payment. What are the terms? Can they be changed? Can the payment be eliminated altogether? If in point two you discovered that you have more “payments than pay” this step is critical to your long term survival.
The budgeting process is easy to understand – it can be very difficult to do. It involves making choices, lifestyle choices, about the things you “need” versus the things you might “want”. You have to find a way to pay for the things you “need”. You only get to have your “wants” after your “needs” have been looked after.
For example, you “need” to have someplace to live. You “need” to eat. You “want” the movie channel on cable TV. Even some of your “needs” have “wants” burried inside of them. When you do your grocery shopping, do you “need” a bag of chocolate chip cookies? If you’ve got more payments than pay you may have to start making these kinds of decisions.
On a larger or long-term level you may want to consider if you really “need” to live were you currently are? Would you rather pay less for rent (and live someplace else) so you can spend that money on some other “need” or perhaps a “want?” You can repeat this exercise for any large payment – do you really “need” that new car, or will an older, smaller model work just as well?
If you in step two you discovered you have more payments than pay then you need to be ruthless in step three. Somehow you need to get to the point that your pay exceeds your payments.
Step 4) Seek professional assistance. For many people it is not possible to get to the point where their pay exceeds their payments – they’ve accumulated too much debt that is eating up too much of their pay. These people need professional help. The solutions that are usually considered include debt consolidation loans, credit counseling, consumer proposals and bankruptcy. Whatever debt relief option you choose has to deal with all of your debts sufficiently that you are able to balance your budget so you are not at risk of missing payments because of insufficient income again.
Step 5) Plan for the future. Once you’ve worked your way through points 1 to 4 the next step is to develop a plan for future expenses – the payments you know you are going to have next month or next year. Christmas is a wonderful example of an annual expense people know is coming. While you are worried how to pay the rent (steps 1 to 3) you can’t be expected to worry about paying for Christmas, but once you’re on top of your payments you need to start setting aside a little bit each pay for things you know are coming later.
Step 5 is really all about putting some of your “wants” back from step 3. Can you afford to add something that you had to cut back into your life? Or would you prefer to be able to save for a specific event or thing that you’d like to have? Maybe you’ve got enough room left from your pay that you can actually save money just for the sake of saving money. That’s a great place to be – it means you might have money in the bank to take advantage of those special opportunities that always come along. Under the old way of doing things, you’d simply ask yourself, “can I afford the payment?” Under this new system you get to ask, “is this how I want to spend my money? Put another way, “what else might I spend this money on?”
Until you get to this point, you’ll simply have to take my word for it, it is a great feeling (particularly if you had to live through point 4). It’s all about control and being able to do what you “want”, not what you “need”.
So, does any of that help? It can, but reading this article is only the first small step in a very difficult process. You can’t fix financial problems overnight. What you can do is break them down, payment by payment, until you find a level that is manageable. Your goal is worthy of your effort.
If you can’t do this by yourself then there are people that can help you get to where you want to be. Contact one of our debt experts and talk to them about getting help reducing your payments to the point were you are satisfied you can meet all your obligations and never miss a payment again.